Education Series

Education Series on Derivative Contracts

Out of the Money:

An option contract is out of the money when the contract is not in favour of the buyer, that is, a profit could not be generated by exercising the right or by trading.

A call option is out of the money at times when the strike price is higher than the spot value of the asset. In such circumstances, a profit could not be made from the contract.

A put option is out of the money when the strike price is lower than the spot value or settlement price of the asset.

When a contract is out of the money, the premium fetched by it may be lower as compared to other times. A contract which may be out of the money at a point of time may turn to be in the money at another time and vice versa